It's hard for me to see how this doesn't hurt local vendors badly. Of course, it depends on what the the 25,000 items are, but that was one of the key differentiators between Amazon and local stores--if you needed something and you needed it now, the local store was the only option (things like cabling for a new TV, gifts for a party that night, etc).
Now, for prime members in NYC at least, Amazon is a viable option.
What other moats do local stores have? Amazon wins on:
* selection
* cost
* convenience
* reputation
* knowledge (this depends on the local store)
What does the local store win on?
* feel good factor (supporting local business and employment)
* hold the item in your hand (not sure there is one word for it in English, but the Germans probably have one)
Sure, in the short-term, Amazon can do what they do and undercut on price, but in the modern age, Wal-Mart has pretty much figured out the optimal model of inventory storage/distribution and the model of keeping inventory on-hand and having customers come to them enables them to do this at an incredibly large scale and at razor-thin margins. Yet they are still margins.
As we have seen before, delivering products at that scale and selection via delivery is extraordinarily challenging to do profitably. Amazon can do a lot of things, but one thing I don't think they will ever be able to do is bring products to peoples' doors at a cheaper price than Wal-Mart can store inventory in large stores and distribute to customers who come to them. There are just too many complexities around the delivery/customer service/quality control processes to make the economics work out.
Wal-Mart has the downside that you have to go to Wal-Mart though. I don't just mean that in the dismissive sense that their stores are unpleasant (which they are), but there's a fundamental mismatch between an urbanizing population and a big box store in the suburbs that everyone has to drive to and lose their car in a massive parking lot.
In fact, Sam Walton knew this. His mission wasn't to dominate the world of retail, it was to bring the same economies of scale urban retail already had to rural communities.
Keep in mind that physical storefronts have costs too. Wal-Mart has warehouses too, and they're probably simpler, but when all you have is warehouses, there's a lot of complexity you can add and still have a simpler, more cost-effective model than employing battalions of people to operate cash registers and stock shelves in thousands of small towns and suburbs across the country.
there's a fundamental mismatch between an urbanizing population and a big box store in the suburbs that everyone has to drive to and lose their car in a massive parking lot.
There are Wal-Marts all over big cities, though. Public transit takes you to them.
Amazon's new service is more expensive than public transit. Also, you also don't get any exercise when using it, whereas many people like going out for a walk. That's a minor point though.
It's probably more accurate to say "There's a mismatch between Wal-Mart and San Francisco." Possibly cultural.
The nearest Walmarts to Seattle are in Renton and Bellevue. The nearest Walmarts to New York are either in New Jersey or upstate. There are Walmart "Neighborhood Markets" in Chicago, but the big box stores that they famously scale with are in the suburbs. There seems to be a Wal-Mart in LA, but not downtown, rather in the area that seems like a bunch of suburbs concatenated together. There are a few in Houston, mainly in the suburbs that were annexed to the city but there's at least one inside the 610 loop. (Having been to Houston, it is also largely a series of suburbs concatenated together.) Those are the four largest cities in the US.
By and large Walmart is a suburban phenomenon. They're trying to move into the cities because they don't have anywhere else to expand, but the assumptions underlying big box stores aren't going to hold up in that environment and they're going to become just another brick-and-mortar retailer, with all the costs that entails.
Hm, it looks like you're right. I should live in those places before talking about them.
It just seemed odd to say that Amazon has an advantage where Wal-Mart doesn't. The announcement says Amazon is offering the service in Manhattan, but there's a Wal-Mart supercenter just 30 minutes away: http://i.imgur.com/oHS2h43.png
Do you feel Amazon can make good headway in dense city areas? It seems like if Wal-Mart can't figure out how to organize distribution pipelines in a given area, then Amazon wouldn't be able to, either. So I was just trying to figure out what critical advantage Amazon might have.
Wal-Mart has B&M locations that you travel to (and if you've seen a sitcom in the last 30 years you know that "just go to New Jersey" isn't a popular solution for New Yorkers). Amazon ships the stuff to you. Now they do it in an hour, if you're in New York. That's as long as it would take to get to Walmart and back, except you can continue living your normal life instead of driving to New Jersey.
(Also, New Yorkers don't drive. So that Wal-Mart in New Jersey is closer to an hour away by transit.)
> I don't just mean that in the dismissive sense that their stores are unpleasant (which they are)
They once were, but I've noticed a marked improvement lately. The newly opened Walmart locally is very nice, clean, and well lit. The local grocery is a dump in comparison[1].
1) no, I don't have this home town sympathy for the local grocery store since it did some bad things in the past that makes Walmart look like a saint in comparison.
Another big difference between this and Wal-Mart is geography. Wal-Mart's strongest areas are less-densely-populated rural areas where one store can draw customers from miles around. And indeed -- you can't easily set up a same-day Amazon delivery service in rural America. The distances and low population density make it completely impractical. For the foreseeable future, Amazon will compete with Wal-Mart in these areas using traditional UPS-style delivery and larger selection.
But this is going into New York City. And the flipside is that you can't put a Wal-Mart in the middle of NYC -- it's cost prohibitive. So it's not clear that this initiative even competes with Wal-Mart really. And brick and mortar stores in the middle of an expensive city have huge real estate costs, so it's difficult (though not necessarily impossible) for them to compete on cost the way Wal-Mart does.
So then my question would be- where does Amazon store their inventory? They still have to figure out a way to give people selection and timely delivery but do so in a way that doesn't involve storing large amounts of inventory in expensive, densely-populated urban areas. The same rules apply to them as Wal-Mart in that regard. Wal-Mart could open a distribution center in Manhattan too, if the economics of it worked out.
So let's supposed that this can be done profitably in New York. New York is a special case in a sense, that it is one of the most densely-populated areas on earth, and so deliveries do scale there in a way they don't elsewhere. But then what is the play in a place like Atlanta, Dallas, or Los Angeles, where driving is essential and addresses are wildly irregular?
Walmart hardly counts as a "local" store. (For that matter, they also sell online.) And between Walmart and Amazon, I'd much rather do business with Amazon.
Actual "local" stores seem highly unlikely to win on price.
I suspect that Amazon and others will solve the "showroom" problem in the not too distant future, for the handful of products where that actually matters.
Other than brand loyalty, I don't see any obvious niche that a local store could do better.
> Sure, in the short-term, Amazon can do what they do and undercut on price, but in the modern age, Wal-Mart has pretty much figured out the optimal model of inventory storage/distribution and the model of keeping inventory on-hand and having customers come to them enables them to do this at an incredibly large scale and at razor-thin margins. Yet they are still margins.
That only works because people don't value their time it takes to get to Wal-Mart and shop there.
For example, try buying a car fob battery -- in my case, a cr2016. You'll see dozens of such batteries, some name brand, some not. But if you read the comments, you'll find that even the purportedly (from the listing name and image) name brand batteries often aren't. eg [1] After spending 30 minutes trying to find a single listing that actually would send me a bloody name-brand, within expiration date battery, I just gave up. This was far more hassle than just going to my local hardware store.
Another place amazon is very vulnerable is personal / body goods and food. I'm fine buying books and flashlights from them, but for food, deodorant, sunblock, lipsticks, etc, I want real goods not fake ones. Ideally purchased by amazon directly from the originating company. Instead, I'm confident that when you purchase those goods, even if directly from amazon and not one of the marketplace vendors, amazon will look to find the closest warehouse with such an item in it (even listed from one of the marketplace vendors) and send that to you. Amazon also makes it quite difficult to just purchase directly from amazon and not from a marketplace vendor. I think there's going to be a huge scandal when people realize lots of those goods are fake.
If a store is close to your commute route, for example, the delivery costs will probably never be low enough to match with that.
I would also dispute on knowledge. In this case, knowledge is a matter of time: you can always google exactly the product you need, but that's going to cost you time. If you're not sure about the exact specifications of what you need, reading reviews isn't necessarily going to help either. Salespeople, if available, can tell you what you need and what's the best cost-benefit (probably leaning towards the more costly).
There's an additional aspect you didn't account for: entertainment. I don't get entertainment off of shopping, but i know a lot of people do. You get some of that while looking things online, i.e. 'browsing' items, but it's not the same experience. Also, shopping is often tied to other entertainment like eating out, movies, etc -- this is done strategically for mutual benefit of mall venues -- and of course can't be replicated online.
It's easy to imagine even if the whole catalog of Amazon were available today for 1-hour delivery for $7.99 (or less), a big part of the average urban dwellers' shopping would still be done offline.
>If a store is close to your commute route, for example, the delivery costs will probably never be low enough to match with that.
I think it's not if it is "close," but if it's "convenient" to your commute route -- in terms of location and/or commuting method. If I am in NYC and I need to get off the subway, walk a half block, get the item, and then walk back and get not he subway; I might not want to do it, depending on the item. If I'm somewhere where I'm driving my commute, I might not think twice of driving five minutes out of my way and I can pick up almost anything. If I'm riding my bike to commute, I might easily be able to stop, but I might not be able to carry it.
I see a lot of then in Copenhagen these days. Mostly families though, since they use them to carry both kids and shopping. Also probably requires a certain infrastructure to work; you wouldn't want to ride one of those in traffic (esp. with kids), only in dedicated bike lanes.
I've seen a couple and given something like that a thought, for a bike to run errands; but, I'd never commute with one. (I'm not sure where I'd park it at work, among other things.)
Good catch on entertainment (and people watching). I'm not much for that, but my SO is.
As for knowledge, I think that it is a mixed bag--I've been in stores where the staff outclassed most anything I could find on the internet, and others where, let's just be charitable and say that the staff was lacking.
Honestly, I like getting out of the house and going to the store. Not every day, I do my share of buying online. But there are plenty of times I'd rather go out and I'm not tempted to sit around and wait to be brought something, even if it could come within the hour.
I often do reverse show-rooming. I'll browse through a real bookstore, which is fun, but I'll look up reviews on mobile and factor that into my buying decisions.
>I'll browse through a real bookstore, which is fun, but I'll look up reviews on mobile and factor that into my buying decisions.
This is my use-case. For my small corner of the world, Amazon has been a boon to used-book stores (even regional chains), as it is now easier to see what I'm buying.
It's in no way clear that Amazon wins on selection. In 25K SKUs, Amazon will have electronics, but almost certainly hace fewer SKUs than a dedicated electronics store. They will have groceries, but not as many as a grocery store. They will have clothing and housewares, but surely only a small sampling relative to Macy's.
I shop at Amazon Fresh in Seattle sometimes, and the selection is significantly trimmed relative to pretty much any local grocery store I can walk into. The tradeoff is the convenience of not having to go to the store and spend my time traversing the aisles.
They are starting with 25k SKUs. They have the potential to have infinite SKUs in this program, while brick and mortar stores are limited to shelf space.
That being said, it might make sense to keep the selection artificially small for multiple reasons.
Depending on how much volume you have, inventory turns are an important gate on how many items you can afford to carry. And I would imagine that there are practical limits on how many SKUs you can pull stock from and still deliver in an hour.
If a Mom and Pop store can't differentiate, why would it be good for them to stay in business?
The ones that provide something extra will raise their prices and be more expensive, and people will go when they're willing to pay the difference; look at the independent book shops in London as an example.
It's a romantic idea and all, but beyond that I don't think "local vendors are de facto a good thing" is a reasonable starting point.
>Local vendors keep the money circulating around the local community in the form of wages, rent, and profits
But that's all it is; a different allocation of wealth. If you happen to live in that community, great.
The question becomes: why should I care about your local community as opposed to some other local community, or even the global community, that stands to benefit from getting more for less?
As for convenience, those without a doorman always think twice before placing orders online.
I think that's one of the major gains of cheap/free fast delivery. It's easier to order if you know you'll get it during the next hour or two when you'll be at home, instead of "tomorrow".
Agreed, which is why I'm interested in this service. In the past I've only used Amazon for large orders when I know I'll be around for 2 days to receive packages during the day.
Don't forget the time you spend commuting to said brick-and-mortar store. Who wants to waste 45 minutes driving to and from Target, only to wait in line listening to screaming kids? There are only so many hours in a day.
I'll do my best to support my neighborhood hardware store, but I'll definitely delegate many purchases to Amazon Prime delivery if it means saving a trip to Target, Best Buy, or other big box store.
I was thinking recently that at this point, I'd only feel comfortable opening up a retail business if a significant part of the business was oriented toward short notice purchases, as that would be somewhat protected from Amazon and other online retailers.
With this development that "short notice" protection doesn't seem so concrete.
You missed customer service, a huge one for me. I actively try to avoid brick and mortar shopping ever since a hardware store owner refused to take back a defective stud finder. Amazon will bend over backwards to make things right for a customer, and accepts returns for any reason.
The local stores I visit are almost never mom & pop shops anyways, but huge franchises like Home Depot, Walgreens, Safeway, or Target. So the feel good factor is non-existent.
Now, for prime members in NYC at least, Amazon is a viable option.
What other moats do local stores have? Amazon wins on:
What does the local store win on? It's a draw on Interesting times, indeed.